Tails Corporation purchased and installed electronic payment equipment at its dr
ID: 2557125 • Letter: T
Question
Tails Corporation purchased and installed electronic payment equipment at its drive-in restaurants in San Maroos, TX, at a cost of $32,400. The equipment has an estimated residual value of $1,500. The equipment is expected to process 258,000 payments over its throe-year useful life. Per year, expected payment transactions are 61,920, year 1: 141,900, year 2; and 54,180, year 3. Required: Complete a depreciation schedule for each of the altemative methods. (Do not round Intermedlate calculation 1. Straight-line onCost De Year Book Value 2. Balance Sheet Year Depreciation Book Value Cost Balance Sheet Statement Cost i Expense Depreciation Book Value AtExplanation / Answer
Straight Line method
Annual Depreciation = (Machine cost - salvage value)/ useful years
Annual Depreciation= (32400 - 1500)/ 3
= (30900)/ 3
= 10300
Straight Line Depreciation Schedule
Year
Annual Depreciation
Accumulated Depreciation
Book value
1
10300
10300
22100
2
10300
20600
11800
3
10300
30900
1500
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In Units of production method depreciation is charged as per the asset use, more depreciation is charged if asset is used more in a year and vice versa.
The formula to calculate annual depreciation is,
Annual depreciation = [Units produced in year/ Life of asset in Units]* (Asset Cost - Salvage value)
Lets put the values in the formula,
= (61920/258000)* (32400 - 1500)
= (0.24) * (30900 )
= 7416
Year 1 Depreciation is 7416
Year 2 Depreciation is calculated similarly,
Year 2 Depreciation = 141900/ 258000* (32400 - 1500)
= 0.55 * 30900
= 16995
Year 3 Depreciation = 54180/ 258000* (32400 - 1500)
= 0.21 * 30900
= 6489
Depreciation Schedule
Year
Depreciation
Book value
1
7416
24984
2
16995
7989
3
6489
1500
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Declining balance depreciation is calculated by following formula)
Depreciation = Depreciation rate * Book value of asset
Depreciation rate = Accelerator * straight line rate
Straight line rate = 1/ useful life of asset in years
If asset cost is 32400 and its useful life is 3 years then straight line rate will be = 1/3
= 0.333333333333333
After that we need to calculate Depreciation rate which will be = 0.333333333333333*2= 0.666666666666667
Depreciation for the first year will be,
Depreciation 1st year = 0.666666666666667*32400
= 21600
Book value of asset after first year of depreciation will be = 32400- 21600= 10800
Next year depreciation will be calculated same way, we can now prepare the depreciation schedule
Year
Depreciation
Accumulated depreciation
Book value
1
21600
21600
10800
2
7200
28800
3600
3
2100
31200
1500
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Feel free to comment if you need further assistance J
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Straight Line Depreciation Schedule
Year
Annual Depreciation
Accumulated Depreciation
Book value
1
10300
10300
22100
2
10300
20600
11800
3
10300
30900
1500
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